NBER Working Papers and Publications

We examine the interaction of economic and policy uncertainty in a dynamic, heterogeneous firms model. Uncertainty about foreign income, trade protection and their interaction dampens export investment. This can be mitigated by trade agreements, which are particularly valuable in periods of increased demand volatility. We use firm data to establish new facts about U.S. export dynamics in 2003-2011 and estimate the model. We find a significant role for uncertainty in explaining the trade collapse in the 2008 crisis and partial recovery in its aftermath. Consistent with the model predictions, we find that the negative effects worked (1) through the extensive margin, (2) in destinations without preferential agreements with the U.S. (accounting for over half its trade) and (3) in industries wi...

Private equity critics claim that leveraged buyouts bring huge job losses and few gains in operating performance. To evaluate these claims, we construct and analyze a new dataset that covers U.S. buyouts from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing them to controls defined by industry, size, age, and prior growth. Relative to controls, employment at target establishments falls 3 percent over two years post buyout and 6 percent over five years. However, target firms also create more new jobs at new establishments, and they acquire and divest establishments more rapidly. Considering all adjustment margins, relative net job loss at target firms is a modest one percent of employment over two years post buyout. In contra...

We assess the impact of U.S. trade policy uncertainty (TPU) toward China in a tractable general equilibrium framework with heterogeneous firms. We show that increased TPU reduces investment in export entry and technology upgrading, which in turn reduces trade flows and real income for consumers. We apply the model to analyze China's export boom around its WTO accession and argue that in the case of the U.S. the most important policy effect was a reduction in TPU: granting permanent normal trade relationship status and thus ending the annual threat to revert to Smoot-Hawley tariff levels. We construct a theory-consistent measure of TPU and estimate that it can explain between 22-30% of Chinese exports to the US after WTO accession. We also estimate a welfare gain of removing this TPU for U....

We provide theoretical and empirical evidence that policy uncertainty can significantly affect firm level investment and entry decisions in the context of international trade. When market entry costs are sunk, policy uncertainty can create a real option value of waiting to enter foreign markets until conditions improve or uncertainty is resolved. Using a dynamic, heterogeneous firms model we show that: (i) investment and entry into export markets is reduced when trade policy is uncertain, and (ii) preferential trade agreements (PTAs) are valuable to exporters even if applied trade barriers are currently low or zero. We derive a structural equation that predicts how firm entry responds to changes in applied tariffs and a theory-based measure of policy uncertainty. Our novel approach using ...